In times of financial hardship it can become easy to look for the quickest way out. Making a withdraw from a savings account such as a Roth IRA can seem like a quick fix for a pesky high interest debt. However, the long term effects can come back to bite you. Here are some reasons you should give it a second thought before touching your IRA:
You might have to pay a penalty if you withdraw from a Roth IRA. A distribution is only qualified if you withdraw on or after the date you reach the age of 59 ½; if the withdrawal is made because you become disabled according to the IRS; if the withdrawal is used toward the purchase of a first home; or if the withdrawal is left to your beneficiary in your will. The withdrawal of earnings must also be made five tax years or more after your first contribution.
A distribution that is not qualified will be subject to a ten percent additional tax penalty. The larger the distribution the more this is going to hurt.
You diminish the power of compounding interest if you withdraw from a Roth IRA. Even if your distribution is qualified, you will have a smaller balance after you withdraw. This means earning less interest, diminishing your returns over time.
You might be unprepared for retirement if you withdraw from a Roth IRA.A Roth IRA is designed to help you pay for your living expenses when you can no longer work. Withdrawing money from it today may leave you with less money decades from now, increasing the odds of being short on cash when you retire.
Financial problems can happen to anyone. Speaking with a financial advisor or a Financial Service Officer at your local financial institution can be a great way to get advice. If you have questions about your own finances, head over to the forums. You can get free advice from experts in the field, and start the tradition of financial fitness in your own home today.
The Mint Makes It First, It’s up To You to Make It Last
-Jainie-
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